Banc of California Whistle-Blower Alleges Fraud, Strippers

Updated on
  • Ex-loan officer files wrongful termination suit against lender
  • Bank’s stock tumbled last year based on short seller’s report

A Banc of California branch in Los Angeles.

Photographer: Katie Falkenberg/Los Angeles Times via Getty Images

Banc of California Inc., the lender under investigation by U.S. regulators after a short seller linked it to an imprisoned con man, inflated profits and ignored a top executive using company funds to pay for strippers, according to a whistle-blower lawsuit.

A management decision to reverse accrued employee bonuses caused the company to improperly carry over revenues generated in 2016 to make it look more profitable this year, according to the lawsuit filed Thursday by Heather Endresen, who was most recently a managing director for the bank’s Small Business Administration’s loan program. Endresen said she was wrongfully terminated after complaining about the shifting pool of bonuses as well as the behavior of the company’s then-chief financial officer Francisco Turner.

Turner used company funds to pay for strippers and had sex with employees in his office, according to the complaint. He also used drugs and pressured junior employees to join him, Endresen alleged.

"I will not comment on pending legal matters particularly since there are no claims against me personally,” Turner said in a statement provided through a spokeswoman. “I vigorously dispute the allegations made about me and am confident that I will be vindicated once the legal process takes its course."

Endresen said she was told by the lender’s in-house counsel that the company didn’t have a policy prohibiting employees from engaging in sexual activity in the workplace or using corporate funds to pay for strip clubs.

Turner ultimately resigned in June to pursue financial technology, venture investing and other interests, the company said in a statement at the time. His decision to leave didn’t relate to issues with the company’s financial reporting or the integrity of the bank’s systems or controls, according to the statement.

‘No Merit’

“The action has no merit and we intend to defend against the claims vigorously,” Joe Hixson, a spokesman for the company, said in an emailed statement, declining to discuss specific claims or personnel matters. “We treat all matters of compliance with the utmost seriousness and any suggestion otherwise is categorically wrong. We encourage all employees to raise any area of concern and we investigate all claims thoroughly.”

Banc of California landed in the national spotlight after agreeing in 2016 to pay $100 million over 15 years to slap its name on Los Angeles’s new soccer stadium. The deal was one of the richest prices ever paid in Major League Soccer.

But the company’s stock tumbled in October 2016 after an anonymous short seller published a report alleging ties between the firm’s leadership and Jason Galanis, a California financier who was incarcerated in New York. Former Chief Executive Officer Steven Sugarman resigned in January when the company disclosed that U.S. regulators had opened an investigation into whether the firm misled investors in its fight against the short seller.

Banc of California, based in Irvine, said in February that an independent probe found that Galanis “had no direct or indirect control or undue influence over the company.”

The bank is also fighting a whistle-blower suit filed in August by Carlos Salas, a fired vice president who alleges that he, Sugarman and several other employees were ousted by a special board committee because they had concerns about the conduct of some of the directors and officers at the bank. That conduct included breaches of fiduciary duty and self-dealing, Salas said in the complaint.

The firm’s stock dropped 2.76 percent to $21.15 at the close of trading in New York, after falling earlier as much as 6 percent, the most since Jan. 23.

The case is Endresen v. Banc of California Inc., B685641, California Superior Court, Los Angeles County.

(An earlier version of this story corrected a description of the sex and drug allegations)

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